Low commodity prices taking toll across the Ninth District.

Third Quarter 1998 Agricultural Credit Conditions Survey

"The current pricing and near-term prices for crops and livestock
are extremely serious. If our agricultural borrowers are not able
to get better prices, they will not be able to survive their debt
or make purchases to stimulate the economy." These comments by a
South Dakota banker, included in the Minneapolis Fed's third quarter
survey of agricultural credit conditions, are echoed by colleagues
in nearly all parts of the Ninth District. The 107 bankers who responded
to the survey revealed the most pessimistic outlook seen this decade.

Farm income and spending

Nearly 82 percent of bankers describe farm incomes as below normal
levels. The proportion rating such income in the lowest category
offered-"substantially below"-doubled from 20 percent to 41 percent.
Only two of the 107 respondents thought their customers' income
was above normal.

Capital spending has also gone south, with 68 percent of bankers
viewing it as below usual levels. For North Dakota and Montana the
percentages are 96 percent and 89 percent, respectively. Only in
Wisconsin, favored by relatively strong milk prices and declining
feed costs, do a majority of bankers see spending on facilities
and equipment as normal.

Household spending has also apparently declined, with 45 percent
of bankers placing it below usual levels. As with income estimates,
this represents a marked deterioration from the second quarter survey,
with those choosing the lowest possible category tripling in number.
Furthermore, responses to questions about income and spending show
that bankers expect the situation to get worse in 1998's closing
quarter.

Farm loan volumes

While feeder loan volumes were already low, they dropped further
in the third quarter. Over 60 percent of bankers rate them as below
normal; no one sees above-normal volumes. Other operating loans,
already above usual levels, crept higher, with 37 percent of bankers
rating this category above normal. The proportions are highest in
North Dakota and South Dakota, where many farmers have unsold grain
from 1997 as well as 1998. Only in Wisconsin, where farmers face
favorable feed to milk price ratios, are general operating loans
at usual levels.

Machinery loans are down and below usual levels everywhere but
Wisconsin. The pattern is similar for other intermediate-term loans,
though not as pronounced as that for machinery loans. Real estate
loan demand also apparently slackened, with 38 percent rating it
below normal.

Bank credit conditions and liquidity

Most banks still have normal or above normal levels of loanable
funds, but the proportion of below-normal responses increased from
15 percent in the prior quarter to 27 percent in the third quarter.
Repayment rates slipped further, with 56 percent of respondents
describing them as below normal. Renewals and extensions are up
as farmers hold grain off the market in hopes of higher prices.

The estimated proportion of borrowers at their debt limits increased
from 27 percent to 41 percent of all Ninth District respondents.
Montana and South Dakota, at 63 percent and 45 percent respectively,
are the most extreme. Wisconsin, where the proportion dropped to
20 percent, is the only state to show improvement.

Interest rates and land prices

Interest rates on farm loans were unchanged or down slightly in
all categories. Estimated price increases over year-earlier levels
were down for both crop and grazing land in most states. For North
Dakota and Montana, average estimated cropland price increases are
about 1 percent, with many bankers reporting no increase and a few
North Dakota respondents reporting declines. These are the first
land price declines reported in the 1990s.

Fixed Interest Rates*

Feeder Livestock

Operating

Machinery

Real Estate

3rd Q '97

9.6%

9.8%

9.7%

9.3%

1st Q '98

9.6

9.9

9.8

8.9

2nd Q '98

9.8

9.9

9.8

9.0

3rd Q '98

9.6

9.8

9.7

8.9

* Average of reported rates in mid-May 1998

Each quarter, the Federal Reserve
Bank of Minneapolis surveys agricultural bankers in the Ninth
Federal Reserve District, which includes Montana, North Dakota,
South Dakota, Minnesota, northwestern Wisconsin and the Upper
Peninsula of Michigan. In August, 107 bankers responded regarding
conditions during the second quarter.